Great Rewards Ford and GM Build and Change an Industry with Price
"In 1908 Henry Ford rolled out the first Model T car. Pricing strategy was an important part of Ford's concept for the car. Ford wanted to produce a car that most people could afford, when the car rolled out it cost $850, a reasonable price at the time. Ford's strategy was built around reducing production costs so that he could continue to gain market share by reducing the price of the car. This strategy worked brilliantly, the price of a model T would eventually drop to $300. The model T became famous, it became the first car to sell 1,000,000 units, it was a media phenomenon and it got millions of Americans driving their own car for the first time. By the time the last Model T rolled off the assembly line over 15 million had been built and it was the most popular car of all time until surpassed by the VW Beetle in the early 1970s.
Ford used price to grow the market, making automobiles available to millions of people who could never afford them when they cost $2,000 or more. He also used price as a competitive tool driving competitors into bankruptcy as his car dominated the market.
But Ford missed a cardinal rule of pricing: If You Have One Price, It's The Wrong Price For Everyone. Ford would not have agreed with the bold statement above. He wanted to build cheap transportation believing that was what people wanted and needed.
Ford's Model T is a great example of how design, production costs and price are closely related. Ford was designing to reduce production costs, among other things that meant he needed to use the fastest drying paint to move production along quickly. By 1914 Model Ts “come in any color you want, so long as it's black” because black dried fastest and pushed the price down. Ford's pricing strategy of one price for everyone was now the wrong price for anyone who wanted a car that was not black, because the pricing strategy forced Ford to offer the car in black only.
General Motors wanted to surpass Ford and become the number one car company. They did not believe “one price (and car) fits all” in fact it realized that Ford's strategy made Ford Motor Company vulnerable. To compete with Ford it developed a strategy eventually articulated as “A car for every purse and purpose.1”
The management team at GM broke new ground in pricing strategy. They linked price, marketing, design and other factors in new ways. The developed a product for every market segment from Chevy to Cadillac, with a price aimed directly at the income level of the target market.
GM pioneered breaking the market into segments with a product and a price for each segment. Customers flocked to buy GM cars, cars which met their needs and appealed to their sense of style and taste at prices that were aimed at them. By 1927 GM surpassed Ford as the largest auto company in the World. Not only was it larger, it was far more profitable in large part because of its understanding of pricing strategy."
Great Rewards
Ford and GM Build and Change an Industry with Price
"In 1908 Henry Ford rolled out the first Model T car. Pricing strategy was an important part of Ford's concept for the car. Ford wanted to produce a car that most people could afford, when the car rolled out it cost $850, a reasonable price at the time. Ford's strategy was built around reducing production costs so that he could continue to gain market share by reducing the price of the car. This strategy worked brilliantly, the price of a model T would eventually drop to $300. The model T became famous, it became the first car to sell 1,000,000 units, it was a media phenomenon and it got millions of Americans driving their own car for the first time. By the time the last Model T rolled off the assembly line over 15 million had been built and it was the most popular car of all time until surpassed by the VW Beetle in the early 1970s.
Ford used price to grow the market, making automobiles available to millions of people who could never afford them when they cost $2,000 or more. He also used price as a competitive tool driving competitors into bankruptcy as his car dominated the market.
But Ford missed a cardinal rule of pricing:
If You Have One Price, It's The Wrong Price For Everyone.
Ford would not have agreed with the bold statement above. He wanted to build cheap transportation believing that was what people wanted and needed.
Ford's Model T is a great example of how design, production costs and price are closely related. Ford was designing to reduce production costs, among other things that meant he needed to use the fastest drying paint to move production along quickly. By 1914 Model Ts “come in any color you want, so long as it's black” because black dried fastest and pushed the price down. Ford's pricing strategy of one price for everyone was now the wrong price for anyone who wanted a car that was not black, because the pricing strategy forced Ford to offer the car in black only.
General Motors wanted to surpass Ford and become the number one car company. They did not believe “one price (and car) fits all” in fact it realized that Ford's strategy made Ford Motor Company vulnerable. To compete with Ford it developed a strategy eventually articulated as “A car for every purse and purpose.1”
The management team at GM broke new ground in pricing strategy. They linked price, marketing, design and other factors in new ways. The developed a product for every market segment from Chevy to Cadillac, with a price aimed directly at the income level of the target market.
GM pioneered breaking the market into segments with a product and a price for each segment. Customers flocked to buy GM cars, cars which met their needs and appealed to their sense of style and taste at prices that were aimed at them. By 1927 GM surpassed Ford as the largest auto company in the World. Not only was it larger, it was far more profitable in large part because of its understanding of pricing strategy."
Reference:
Gamasutra. Think Services Game Group, 20 Sept. 2005. Web. 09 Oct. 2009. http://www.gamasutra.com/features/20050920/hunter_01.shtml.
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